Question
Ms. D sold a business that she had operated as a sole proprietorship for 18 years. On date of sale, the business balance sheet showed
Ms. D sold a business that she had operated as a sole proprietorship for 18 years. On date of sale, the business balance sheet showed the following assets:
Tax Basis | |||
Accounts receivable | $ | 33,500 | |
Inventory | 156,800 | ||
Furniture and equipment: | |||
Cost | 46,500 | ||
Accumulated depreciation | (37,200 | ) | |
Leasehold improvements: | |||
Cost | 30,000 | ||
Accumulated amortization | (6,000 | ) |
The purchaser paid a lump-sum price of $362,250 cash for the business. The sales contract stipulates that the FMV of the business inventory is $155,600, and the FMV of the remaining balance sheet assets equals an adjusted tax basis. Assuming that Ms. D's marginal tax rate on ordinary income is 35 percent and her rate on capital gain is 15 percent, compute the net cash flow from the sale of her business.
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Foundations of Financial Management
Authors: Stanley Block, Geoffrey Hirt, Bartley Danielsen, Doug Short, Michael Perretta
10th Canadian edition
1259261018, 1259261015, 978-1259024979
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